APPROVAL, PRE-QUALIFICATION AND LENDER LETTERS
Buying a house is not an event, it is a process. Most of the time in today’s post-bubble, post-TRID real estate market, the process is a little more complicated and takes longer.
As the process gets more complicated, the anti is upped for everyone, including the buyers. Having a pre-qualification letter from a local, reputable lender is a must before most sellers will consider a buyer’s offer.
- Bank-Owned properties, or Foreclosures, will not consider an offer from a buyer without a letter from a lender pre-qualifying that buyer for the amount offered. Many times, the bank will insist that the buyer get pre-qualified with their own lenders before they will consider the offer.
- A short sale requires the approval of the third-party(s), the lender(s) who hold the note on the home. They will want to be assured that the buyer will be approved for the loan, so they don’t have to have the home back on the market if that buyer doesn’t qualify for the loan.
- Traditionally marketed homes without the encumbrances of bank approval have the choice as to whether or not they will require a pre-qualification letter with the offer. In this environment a homeowner would be crazy not to require a lender letter along with the offer from a potential buyer. Any listing agent will advise their seller client to require a pre-qualification letter. A seller wants to be assured that the buyer can make good on their offer before tying the home up in a contract and taking it off the market.
HOW TO GET A PRE-QUALIFICATION LETTER
- W2 statements (or 1099 income statements) for the last two years
- Federal tax returns for the last two years
- Bank statements for the last few months
- Recent pay stubs and proof of other income
- Proof of investment income
When a buyer gets a pre-qualification letter, the buyer isn’t obligated to borrow from that lender; it’s just a conditional promise that the lender is willing to make the loan. We always advise buyers to get pre-qualified with a strong local lender.
Remember, it does no good to hide information, it will eventually come out anyway. Borrowers must be completely forthcoming when it comes to their finances from the beginning to avoid any last minute surprises and disappointments.
Pre-approval is exactly that. A buyer can apply for a loan and go through the process of getting approved by the lender before they even make an offer on a home. In a competitive sellers’ market, it can be a good idea. Then when a buyer finds a home they want, they can make an offer with not just a pre-qualification letter, but with a stamp of approval. The extra leverage of having the proof that the buyer can get financing may just be the additional tool that makes them stand ahead of the pack when there are competing offers.
As a buyer, if you’re a planner, this preliminary step of pre-approval might make sense. However, if you are looking in today’s highly competitive sellers’ market and find your dream home…don’t hesitate. If the home is in great condition and priced well, it may not be available for long. There is always a balance between keeping a cool head and knowing when to jump on the right home. (That’s why you need an experienced agent as your trusted adviser…I know, I seem to say that a lot!)
In today’s times where the process is more complicated, it’s a good idea to get the loan process started as soon as possible. Lenders tell us all the time, the best scenarios happen when buyers are prepared and prompt with their paperwork. With the changes in the process because of new legislation (TRID) it is absolutely necessary to be prompt on the paperwork.